Decentralizing Kenya: Four Paradoxes

When I was growing up in Bavaria—Germany’s largest and proudest state—there were a lot of efforts to revive remote regions, especially those bordering the former East Germany and Czechoslovakia.

There were special incentives for industries to locate in these regions and important federal subsidies to their local governments. Other countries made much more radical attempts at reshaping their economic geography.

All of these experiments yielded the same result: complete failure! Germany’s remote regions never became centers of economic activity, while the big cities—especially in emerging economies—continued to mushroom and grow.

Devolution will reshape the country’s institutional architecture, not just because of the transfer of functions and finance, but also because it involves the creation of a forty-seven brand-new counties which will bring together deconcentrated offices of many national ministries, local authorities, and district administrations.

Kenyans have sky-high expectations of what devolution will bring, but decentralization is not in-and-of itself a panacea for development. Almost everywhere, at different times in history, decentralization has been driven by political imperatives, not by economic arguments.

The challenge for Kenya’s policy makers in the next year and beyond will be to manage expectations carefully because the risk of disappointment will be huge. To do this they will need to be mindful of four paradoxes that will characterize the decentralization process in this early phase of transition:

Figure: Kenya’s economy is concentrated along the “Northern Corridor” (click on it to see it larger)

Source: World Bank Kenya based on the methodology of the World Development Report 2009

Paradox 2.To make decentralization work, you need strong central systems. Some Kenyans want the central government to stay out of devolution and leave it to the counties to manage their own affairs. In fact, devolution requires sustained central coordination to be effective. Central systems serve two main purposes: to make sure weaker counties’ needs are being addressed through capacity building and that the spending and performance of county governments can be compared on a common basis thanks to accountability systems.

Paradox 3.If not managed well, decentralization may lead to greater inequality. Some counties will start at a relative disadvantage and it will take time to build up their capacity. They will be the least equipped in practice to make efficient and transparent use of their resources and retain the skilled staff that is essential to making services work.

Paradox 4.Despite decentralization, county governments won’t have a lot of additional resources to spend. Counties will receive transfers from the center but also inherit responsibility for delivering a wide array of existing services. The size of the transfers for each county will also be small. If the government would devolve 15 percent to sub-national governments, each of the 47 counties will only receive 0.3% of national revenues. Counties will have the latitude to shift funding to new uses but they will need to make cuts in other services that are currently provided.

In many countries, decentralization is associated with great hopes and disappointments. The disappointments resulted from a misunderstanding of what decentralization can realistically achieve in the short run.

One thing is clear. To address spatial imbalances in lagging regions while maintaining services where Kenya’s growth is generated, Kenya has to grow the cake while splitting it. This would make sure that each slice of the cake is bigger.

Comments

Wolfgang,
This is a puzzling strategy, given the paradoxes you have provided, and general global trends. There was recently an analysis I read by McKinsey which talked about the growing urbanization of the world, and all the major new population centers that would evolve. While I am always a fan of breaking out from the herd and following your own path, you need to make sure it's going to work for you as well. Thanks!

David,
Kenya will continue to urbanize, just by the simple fact that its population will grow rapidly while the size of the country will stay the same. So the question is: How to make the most of a rapidly urbanizing country? And Kenya is not alone. Most other emerging economies are in a similar situation. Here is the link to probably the most authoritative work on "economic geography", the World Development Report of 2009: www.worldbank.org/wdr2009.
Wolfgang

Your article is interesting and engaging in as far as it looks at the practical challenges. I would like to point out a number of important points however: 1) I suppose you have spent some time in Kenya, do you have an idea about the sort of roads, schools, rural dispensaries, insecurity that the marginalized regions contend with? Opposing devolution because urbanization is the trend misses the point by a wide margin! Nairobi is the all in all, yet we see massive traffic jams and lack of social amenities, so clearly Nairobi cannot host the 40 million Kenyans. This calls for a bold and radical look at what Kenya has been doing for 50 years and evaluate whether continuing to do the same will bear different outcomes. I can tell you it wont. You gave the example of Bavaria where my close friend comes from: Infrastructure in towns is superlative, so manufacturers such as Audi, C. Air Systems, BMW and Siemens can be in regional towns not in Berlin or Munich for that matter. Munich specializes in other things. So how does this relate to Kenya? This is how: Why should a farmer growing coffee in Nyanza or Mt. Elgon carry it to Thika to be processed? Why not have local processing plants which in fact will stimulate production? Why should every one have to move to Nairobi when various regions can specialize in economic activity that the resources in the region allow? Eldoret is a wheat growing area and a great athletics hub. Why not have sports facilities and flour mills there? Kericho grows the most tea but the Tea Company headquarters are in Nairobi! I could give many examples...there is oil in Turkana, what material improvement will the Turkanas get if all investment decisions are made in Nairobi? The model you espouse has produced two Kenyas. The first one is the urban Kenya which lives in Nairobi and maybe a bit in Mombasa and the rest rural Kenya which donates all skilled people to the two cities and experiences brain drain, low investment and sky-rocketing crime besides ethnic marginalization and tensions. Devolution is our best short to reverse this situation and if implemented faithfully with 'Germanish' efficiency, shall change our nation. What you recommend is somewhat like asking all of Europe to move into Germany instead of Germany helping the other European nations to weather their economic challenges!

"Why not have local processing plants which in fact will stimulate production? "
This is already addressed in the first Paradox. Why would I as an investor want to incur the peripheral costs of developing access roads, power transmission and other amenities to get the processing plant to be productive while I can pass on the cost of getting the produce to my plant in Thika over to the producers? Business is about returns and discarding the beneficient need to invest in marginalized areas for a minute, I would rather put my money were it will return the highest ROI - that location is in urbanized and well developed locations; not in distant, difficult to access and potentially isolated locations.
One other Paradox that the author fails to mention is that most of these counties lack the human resources to move forward in any orderly fashion. There, I said it. Again, I will invest close to my resources - that is in the urban areas where I can access specialized manpower and human resources to earn the return that I seek.
Having said this, the devolution may create net additional opportunities and stem the rural-urban migration that has left many marginalized areas lacking in the skilled manpower necessary for economic development to take place. Investors will be slow to follow abut they surely will. I for one think that there is more potential outside of the urban areas of Nairobi and Mombasa. If the counties execute well and keep that corruption tiger at bay, then they will reap the benefits arising for a scramble for the countryside.

maybe this should have come with the constitution as a disclaimer.all of us have such hopes,such seemingly unrealistic hopes that i think we better start preparing our throats to take pinches of salt.but anyway with the characteristic Kenyan optimism,i am sure we will hack it.though it will take time and a lot of work.the idea of minority counties resource wise has been addressed in the constitution so i do not think it's an issue.the issue is how the respective minority counties will utilise these funds.going by the cdf experience,there differences in county development in Kenya will be tied to the management and leadership team in place,the politics of the respective ethnic regions and the economic culture of the ethnic region.some tribes in kenya are more innovative investment wise than others.

This is an important area of discussion given the rapid changes on one hand the expectations on the other! Obviously with 47 counties, I foresee disappointment in most areas. Previouly, economic activities were centred around the 8 provincial headquarters and some district HQ. How will the government manage to ensure economic flows are realised at the new counties?
We still need a strong central government,especially at the initial years - but do we have adequate resource powers at respective counties to manage the affairs? Is the a resource needs assement in place to ensure skilled implementors are available in each county?
Do we still have a clear policy document highlighting the functional boundaries of central government and counties - or come 2013, all will start pointing fingers at each other due to lack of clarity in roles and responsibilities?
Lastly, what type of identities are respective counties expected to take?

Do you know how the Kenyan plan compares with neighboring Uganda?
Decentralization has been the official line there for years. There were 38 districts in Uganda in 1991, and today there are 111. The given reasoning has always been that it will extend the services closer to the people, but does the evidence support that?

Thanks for an interesting read. Two things struck me as I read this.
(a) It is not clear to what extent counties will have revenue responsibilities. If they will be raising most of their revenues themselves, then the central transfer system will possibly need to be strengthened to include an explicit redistributive component. This is because otherwise inter-county imbalances in economic activities can become magnified over time by differences in the county's revenue base. On the other hand, if counties do not have revenue raising powers, this would break the implicit fiscal contract. In most cases this is associated with poor accountability and service delivery. Is the political system strong enough at the county level to counter this tendency?
(b)Another question will be how ad-hoc or otherwise are transfers from the center? Are county revenues based on tax sources which are sufficiently buoyant and stable? Are the systems strong enough to prevent leakages?
Decentralization is a tricky thing, one which needs to be managed well.

The fundamental imperative for devolution is to address the credibility crisis that has been facing the governance structures of Kenya for some time now. I do agree that political imperatives may not align with economic realities but in our case there is no doubt that without addressing a need for increased political accountability any economic gains would be minimal.
While i understand that the economics of devolution will be a challenge, my primary concern is that it drives a more accountable behaviour from our politicians and an increased participatory attitude from our citizens.

Hi Wolfgag,
I read with interest you blog on decentralization. I fully agree that decentralization or devolution as it is popularly known is not a panacea I however still think that a heavily centralized government has been the bane of corruption, nepotism and inefficiency. In my own view it has been responsible for the overpricing of Nairobi at the expense of other cities in Kenya. Decentralization has its own challenges, some of which you have rightly identified but I think if properly embraced and harnessed , it would be a lot better than the current top-heavy "Nairocentric" system we have.

Jo,
Thanks for very valid points. Maybe we need to separate between the "political Nairobi" which you associate with Kenya's centralization and the "economic Nairobi" which you should be happy to have. You can make devolution to work for Kenya while still protecting its growth engines. New York and Los Angeles are growth engines in the USA but no-one would associate it with centralization.
Wolfgang

Decentralizing in many African countries has been people's aspiration. Devolution of power was one of the key issues that delayed the constitutional review process in Kenya as from 1999. I fully agree that decentralization is not a panacea, and will never be, to development. It depends on how it is designed and what people make out of it. After four decades of centralized systems of governance, it is time for African countries to decentralize. Of course, it should not remain a political option of governance, but rather a result of feasability studies taking into account possible obstacles and lessons learnt from other countries. Decentralization could be a way of promoting transparency, and competition for economic growth between various counties.

Very good points. Some of the challenges you highlight are not unique to Kenya. The experience of South Africa post-apartheid, Ethiopia after the Ethio-Eritrean War, and Uganda in the late 1990s may prove instructive, especially since they all had similarly ambitious programs. A good deal depends on how the intergovermental fiscal framework that they construct -- and specifically whether it balances empowerment objectives (such as allowing local decision-making) with service delivery objectives (such as access, efficiency, and quality, etc.). There are some commonalities in the approach taken by the three countries I mentioned (for instance, the use of a formula-based equitable share for the recurrent costs of local services, a partially performance based capital grant, and a multisectoral capacity grant). These of course will eventually throw up new challenges but its a step in the direction of ensuring that local executives viable over time.

The beauty of this article despite its glass half empty perception is that lessons can be learnt from other economies which have tried decentralization only to realize failure. One thing that needs to inform my country's decentralization programme is from whence have we as a people emerged. It is a given that past regimes had little inclination to economic development and only hoarded individual wealth at a regional level - but now that the new dispensation almost casts devolution on stone it provides an avenue in which the populace need to reform their work ethic in a manner that will make county governments the engine of wealth creation.
Capacity is not lacking - cordination of this technical know how is probably the key thing. Nevertheless as Policy makers and implementators it will be imperative to not have failure as an option because it is a matter of life and not death! Too much incentives could also distort the potential of counties.
Be that as it may,devolution is THE opportunity(politically and socially) to harness the potential of my motherland!

I have just completed a six weeks assignment on the impact of drought on communities in 3 of the most (neglected?) counties in northern and eastern Kenya. The experience was heart breaking as communities narrated their experiences in the hands of cattle rustlers and government security agents,hunger,diseases and theft of development funds by civil servants from Kenyas rich areas, among other calamities, These problems have been increasing over the last nearly 50 years since Kenya attained political independence with population increase in the areas leading to more conflicts over declining resources. I have no doubt in my mind that with devolution,the people of the marginalized counties,especially those in northern Kenya and the coastal region will be better off, despite their serious skills capacity limitations.

All you've said are pure facts. However the central government must allow county governments to and their populace to worry about their own problems. Some regions of the country are marginalized but their leaders and the people themselves are reluctant to change their livelihoods and unless they are allowed to run parallel governments with other counties will never wake up.
Mak

Thanks for the insights provided by the empirical findings on the impact of decentralisation in some democracies. While agreeing with the findings, I hasten to point out that no two countries are identical in anyway. To those of us living in Kenya, decentralisation would not have come at a better time reflecting on what happened after the last elections. Some of our "political entrepreneurs" riding on the backs of an oppresive centralised system and the ostracisation/relegation to the periphery in authoritative allocation of resources cannot explain the whole story. It may be too early to cast aspersions on whether or not the direction Kenyans chose is right. Others have walked the path, Canada, India, S. Africa etc and I cant wait for that time when all will set rolling. Let us all believe that we shall make it. Thanks.

Wolfgang, I think you did a good job in summarizing some cautionary guidelines on decentralization and, observing that the devolved funds are so little, emphasized the need to nurture other non-monetary resources in our possession.
This could be done through the rural development supply chain based on a core project such as a university campuses, national school clusters, military barracks, HIV orphans villages and so on.
Such core projects, from a sh 47 billion “futures insurance” would be designed to be self sufficient with large surpluses gong into a national fund for replication and up scaling
In this way, the main security risk in Africa currently, unemployment, especially among the youth, which escapes global polity and the powers that be due to lack of holistic thinking at policy-making levels, could be easily tackled.
Failure to do this will invariably result in, among other things, poor governance inter-communal hostility and simmering warfare which in turn trickle down to low living standards. That is why Maina Kiai’s Kalenjin youth walk away from peace meetings because they under threat of redundancy and no alternative métier is in the offing.
With sustainable employment – here including meaningful self-employment – food production, education, health and other needs are more likely to be met and the “national cake” , now with so many more bakers is likely to be large enough for sharing….provided the entitlement that comes with dependency syndrome not have, with employment, abated .
Conversely, warlords and sugar-daddies will encounter shortages as the erstwhile canon fodder opts for safer occupations such as eco-construction, solar panel manufacture and so on in place of militia membership and street-walking.
As people grow wealthier, they tend to be more psychologically secure, whereby they can then troop to the ballot box with issue-based choices on how their tax money, now that they have something to be taxed, is used.
These things are not so difficult to achieve and all the talk about foreign investors, natural resources, foreign debt relief, corruption and so on, though important, diminishes to the second tier and is no longer an end in itself.
Establishment of social, environmental and economic equity within reason is a paradigm in which everyone has a deep stake.
The ironic fragility of the situation is exemplified by a relationship between two neighboring Nairobi residential areas:
Lavington is a high-class area, ostensibly secure behind high-level razor and electric wire topped walls accessible through steel electric gates, next to Kawangware, a slum that provides Lavington with domestic servants.
The average Lavington denizen may be remotely aware that those who installed these safety measures, operate the gates, tend the gardens and look after the children and feed the mastiffs are the same people against whom these barriers were erected in the first place.
Scaling up, a similar Afro-European relationship is growing, where the latter requires the former’s youthful labor, raw materials and growing markets to care for an increasingly elderly population.
As Africa’s population rises from the current 930 million to 2 billion while Europe’s falls from 720 to 690 million in the next 30 years, something is likely to give, the hints of which are betrayed by upsurges in right-wing European voting patterns.
Kariuki Kiragu. shadaonline.co.ke

As a Kenyan who has lived with the notion of districts as the unit of devolution since independence, I think there's too much hope bequeathed on the county as the unit of devolution since the promulgation of the new constitution in 2010. In my view, going by this article, the new constitution is a document that has made most people hopeful, yet in real life, it's a disillusionment in its form and shape. Devolution as an element for distribution of funds has made life look so simple yet there is more to what meets the eye. Let us be realistic making funds available at the county level, does not make it fine if there are no means to promote accountability and transparency among the public servants. While Article 10 points out at National Values and Principles of Governance, there is still a need to outline personal ethics that govern public finance and expenditure, from the local to the national level, which need not be in the constitution but drawn in the personal attributes of individuals.

I am not an economist by profession. I am however a keen observer of economic, political, cultural and social trends across the world history. One fact that is evident is that no singular economic model is compatible with all cultures. The Chinese business culture and political system is successful because it is compatible with Chinese culture and current global economic trends. Similarly the system in the western world flourished at a given point in time and culture.
I dont think a purely western style of economics is suitable for Africa. Historically and culturally Africans work together as specific communities to pursue individual and common goals. This is best achieved at community levels and is best served by decentralised systems of governance. Western world is purely individualised capitalistic and government aims to pursue limited roles. In Africa, government should actively be engaged with people at ground levels to pursue individual, communial and national goals. Any other system is incompatible with African cultural set up. That is why inherited governance systems have failed Africa largely. The Chinese political-economic model is closer to Africa.
In Africa, growth should not be driven just by companies but also by communities, governments and cultural institutions.

Thanks Wolfgang for your piece,
You are right that there needs to be a balancing of centralization and decentralization if the gains are to be experienced. Kenyans are weary of excessive centralization for its seen as synonymous with misery given the many years of abuse of powers for private gains. Had centralization worked, I doubt there would such a deep demand for devolution.
That said, I am an optimist that the new decentralization system will work when the leaders choose to look at long term benefits and thus build the economic bases that will sufficiently supply the resources for service provision. A sacrifice on the part of leaders is important in the first 10 years. That would mean maintaining lean county governments and investing in the areas that give each county a competitive advantage. I also think that the citizens have an indispensable role by being involved in what is done in their counties.
The role of the central government must not be limited to sharing resources but also facilitating start up capacity building in all aspects - Technical, Human, Financial. This would for instance by implementing the various flagship projects outlined in Vision 2030. That will attract investors to new locations. But truth be told, even in the counties concentration will be in the urban areas and cities.
I remain optimistic and will join other Kenyans to build our country.

Thanks Wolfgang for a good job.
Since independence,we have been fighting three main enemies of development;namely Ignorance,Diseases & Poverty.Alot of research has been done by the policy makers but our kenyan development economy since to be abit resistant.This is because we have all along been using pain killers to cure our economic problems.The pain killers only give a relief in the short term but in the long term, the main issues are yet to be tackled.
Its time we need to be development minded rather than relieve-minded and give a permanent cure to our recurring problems such as famine & floods.
The sooner we do it, the better.

I have read every comment on Wolfgang's article and I couldnt help but marvel at the high levels of intellectual energy that individuals have. Its great and so much refreshing to read incivisive and educative dimensions, to the extent that I wonder why Africa is still lagging behind in development when ideas and insights like these are available within the continent. I propose more organisation between all individuals interested in Africa's development, creation of groups of inter-regional co-operation and any thing else that encourages healthy and productive debate and exchange of ideas between Africans and pro-African individuals across the globe.

Dear Muwona,
I could not agree more with you and will respond to all the comments shortly, many of which go beyond this blog but are linked to other contributions as well.
Maybe we can also turn your broader point around: Given the strength of Africans and the experiences they went through over the last decades there is finally hope for the continent to take off (my next piece will be on "East Africa's race to Middle Income"). And the fact we can interact with each other at relatively low cost through a forum like this will hopefully drive another revolution unleashing Africa's creativity.
Wolfgang

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